East L.A.'s political power - and how it conducts business.

David Lizarraga learned his way around town - from the barrio to the boardroom as he catapulted The East Los Angeles Community Union from a small, nonprofit agency into a multi-million dollar corporate conglomerate.

Throughout that journey, he has never underestimated the importance of political connections.

"We think that relationships with people in government are very important," said Lizarraga. "Our job is to impact the process to educate people," he said. "For that, we never apologize."

But perhaps it will require some explanation.

TELACU's plans to play a major role in the city's biggest continuing public works project - the Metro Rail subway - have been sidetracked by a criminal investigation.

In a stunning move, MTA inspector general Arthur Sinai disclosed last month that he was investigating the agency's handling of a $65 million contract to oversee construction of the Eastside subway extension.

Construction experts had ranked Metro East Consultants - a partnership that includes TELACU - last among three contenders for the job. But Metropolitan Transportation Authority chairman Joseph Drew overruled the panel of experts and asked the MTA board to award the contract to Metro East.

Before the board could act, Sinai disclosed the criminal investigation - delaying any action on the contract award until the probe is completed.

TELACU and the lead Metro East partner - engineering firm O'Brien Kreitzberg and Associates Inc. - have maintained that they won the recommendation solely on merit.

"We have the best team, a very competitive team. I believe this will all work out in the end," said Lizarraga, whose firm was enlisted to help mitigate construction impacts on the community.

"We were only a few points off from the top spot during the last scoring, but one significant fact is that we are comprised of almost all local firms. We felt the decision was based on our abilities."

Drew, who declined comment for this article, has said that he disagreed with the criteria used by the expert panel.

Even so, several MTA board members have harshly criticized Drew for his selection of Metro East - implying that politics was at the heart of it.

While reserving judgment on whether the contract was justified, MTA chairman Larry Zarian said the matter needs close scrutiny.

"I want to know more in detail about our subcontractors, and details on our consultants," Zarian said. "The politics of this needs to be assessed. We need to get better information as to what we're dealing with. We've got to do a better job."

Prompting at least some of the skepticism has been TELACU's longtime association with MTA board member Richard Alatorre, a Los Angeles City Councilman.

Alatorre has long championed TELACU's interests in winning government contracts, and over the years Lizarraga and others associated with TELACU have contributed to Alatorre's political campaigns.

Lizarraga defends such political alliances as a necessity of doing business.

"We need to be part of the system - it's there for us. Government is there for us as well," he said. "I think it is an unfair criticism of our political connections."

Alatorre puts it more simply.

"This is business," the councilman said. "They have to run a business, and they are good at it. They don't do anything different than anyone else - they are competitive, acquired companies, and reinvested in the community."

But TELACU Industries is hardly your typical business.

Nurtured by federal grants from its founding as an anti-poverty agency in 1968, the original TELACU spun off TELACU Industries Inc. to support the work of its non-profit parent.

TELACU Industries quickly branched out into a range of businesses - banking, real estate development and even a restaurant while Chairman and CEO Lizarraga forged political friendships from L.A. City Hall to the White House.

Despite its government connections, TELACU Industries is privately held and does not disclose its financial reports.

According to a company brochure, TELACU and its subsidiary companies - including TELACU Investment Co., Community Thrift & Loan, TelaLink Corp., Herman Weissker, Inc., and the Eastside's Tamayo Restaurant - have nearly $300 million in assets and more than $100 million in annual revenues.

Supporters of TELACU point out that the group's companies - as well as political connections used to secure contracts - supply capital needed to run TELACU's social service programs.

These include programs to provide jobs, education, and low-cost housing to Latinos and other low-income residents of East L.A.

From a wood-paneled comer office on the third floor of TELACU's headquarters on Olympic Boulevard in East L.A., Lizarraga can see rows of rooftops that line the barrio. Some people have looked upon these neighborhoods as economically unsalvageable; Lizarraga spots opportunity.

"We in many ways are pioneers in many things we do," said Lizarraga about the organization's hybrid of profit and non-profit. "We are in the forefront of change for the economic development community. The fact is that when you are a change agent in any way, you attract attention."

TELACU has certainly attracted its share of attention. The organization came under fire in the early 1980s after a federal audit determined the agency was grossly mismanaged. The audit ultimately resulted in the loss of TELACU's small business license, forcing it to repay the government about $3.2 million.

Lizarraga said TELACU's leaders have learned some hard lessons, and concentrate on pushing ahead.

"You continue to press on. If you really believe in what you're doing, it means you have to press on; sometimes you don't win them all, and you have to brash yourself off because you have a responsibility to the community," he said.

Indeed, TELACU's past troubles have not prevented it from forming successful partnerships with many of L.A.'s largest businesses: Southern California Edison, Pacific Bell, Lockheed Development Co. and GTE.

"TELACU has the means to be successful, regardless of what happens (with the MTA probe)," said state Sen. Louis Caldera, D-Los Angeles. "They will have the ability to compete regardless of the politics."

Some observers say that the furor over the Metro East contract obscures the larger issue - that the 13-member MTA board, comprised mostly of local elected officials, is too vulnerable to political influence.

"You are begging for political influence to be pointed at the executives with the way the board is put together," said one former high-ranking MTA official. "We need to look below what's going on now until somebody addresses the question of the invitation for political leaders to fool around in the awarding of contracts. Nothing will change but the names."

At a Glance

The East Los Angeles Community Union (TELACU) is a non-profit community development organization. Many of its services are funded by TELACU Industries Inc., a private, for-profit corporation with several subsidiaries. The corporate side boasts nearly $300 million in assets and over $100 million in annual revenues. Divisions include:

* Community Thrift & Loan

* TELACU Commercial/Industrial Development

* TELACU Financial Services 

* TELACU Development

* TELACU Real Estate Services

* TELACU Senior and Affordable Housing

* Herman Weissker Inc. (utilities infrastructure)

* TelaLink Corp. (fiber-optic cabling)

* TELACU Construction Management

* South Coast Shingle Co. Inc.

* Tamayo Restaurant

* TELACU Education Foundation (nonprofit affiliate)

* Inter-City Energy Systems

* TELACU Weatherization

* TELACU Youth Services (nonprofit affiliate)

* TELACU Carpenter & Co.

Source: The East Los Angeles Community Union.